Last Updated on: 22nd November 2023, 04:41 pm

The advancement of digital technology is at an all-time high. It could even be said that today is the digital counterpart of the industrial revolution, where back then it was a transition from creating goods by hand to using machines, and now it’s a transition from analog processes to doing and documenting things digitally.

When it comes to finance, the industry is seeing some of the most significant advances. The financial technology, or “fintech”, that has come about is an industry in itself, and has disrupted traditional finance as a whole by pushing traditional institutions to innovate or risk becoming irrelevant in today’s highly digital era.

Fintech continues to expand and evolve rapidly, to the point where it is now being pegged to become a US$1.3 trillion industry by 2023. For consumers, this likely means potentially wider access to better services. However, while most individual fintech firms are modest in size and operation, their ability to scale up very quickly exposes them to riskier clients and business segments than traditional lenders.

Risks to neobanks

Fintech firms, also known as neobanks, continue to grow in systemic importance to the respective markets they serve. However, as a result of more and more customers learning toward them for transactions, financing, and general money management, neobanks continue to become  increasingly exposed to the risks from consumer lending. 

This is because consumer lending on the digital or neobank end, which at this juncture is not as well regulated as traditional banking, has much fewer buffers versus losses due to being uncollateralized. This also extends to higher risk-taking in neobanks’ securities portfolios, as well as higher liquidity risks (specifically, liquid assets held by neobanks relative to their deposits tend to be lower than what would be held by traditional banks).

Testing resiliency

Then there is also the risk being tested now that affects both neobank and consumer, which is how the former’s resiliency in an economic downturn has yet to be proven. And so far, it is not going well.

From reaching record highs in valuation in as little as one or two years ago, many neobanks are now having to endure tough times. Those who continue to rely on investors are experiencing a funding winter of sorts, as the economic downturn has led to many funders tightening their belts. Simply put, many are not prioritizing backing neobanks despite fintech still being a potentially rapid-growing industry.

While true gloom and doom has yet to materialize, the potential of any neobanks shuttering operations puts existing clients at risk, as there has yet to be solid regulations put into place for them in the event of what would be their version of a bank run.

Regulation is priority number one

It cannot be emphasized enough how the regulation of fintech companies continues to be a major concern, particularly since the rapid growth of the industry puts a degree of risk to both neobanks and the customers they serve.

As such, some governments have already begun taking steps to regulate their local fintech markets. Other institutions like the Financial Stability Board (FSB), an international body monitoring the global financial sector, continue to publish its regulatory frameworks for finance-related activity like the trade and purchase of crypto assets.

Granted, a great deal of adjustments must be made by neobanks in order to ensure complete compliance with the regulations of the markets they are in, but in the grand scheme of it all, it will prove beneficial to the companies who are committed to redefining fintech and the financial industry as a whole. Such companies include Black Banx.

At the forefront of financial innovation

Established in 2014 by German billionaire and CEO Michael Gastauer, Black Banx’s mission is to unlock a borderless financial system for everyone where money can flow freely.

To date, the company has amassed the patronage of over 28 million customers, six million of which were onboarded in the just the first half of 2023. Offering private and business accounts in 28 FIAT currencies and 2 crypto currencies across, Black Banx is easily one of the most flexible digital banks in the world, and is understably expected to have well past 30 million by year’s end.

Granted, the rapid growth which the company has enjoyed since its public launch in 2015 is thanks in part to loose (if not non-existent) regulatory policies for fintechs in the different markets it has entered. However, as domestic and international regulators try to keep up, it can only prove to be beneficial to Black Banx’s commitment to offer borderless banking services at reasonable transaction costs.

For one, the aforementioned transaction costs can become even lower for customers with the proper price regulations in place that applies to all neobanks. Similarly, if and when collateral rules are put into place, risky neobanks will be weeded out, while the likes of Black Banx who have earned substantial revenue from its operations and are not reliant on external investments can show that they have a ready fallback in the event of an economic downturn.

As one of the first few neobanks to offer accounts and allow transactions across traditional FIAT currencies and crypto-currencies, Black Banx help better ensure the security of customers finances while preventing potential unlawful activity on its platform with detailed regulations to follow.

As the company embarks on further expansion to markets such as those in the Middle East and Africa, Black Banx only sees its growth trajectory becoming more rapid as proper fintech regulations can only illuminate what is, right now, not the clearest path for digital finance.